Behold ‘The Amazon Effect’: Now Murdoch’s Gunning for the $10 E-Book

Smelling blood in the water after Amazon caved to Macmillan’s demand to stop selling e-books of their titles for only $10, News Corp Chief Rupert Murdoch says he, too, wants that deal.

Murdoch’s media empire includes HarperCollins books, which has had 20 titles on New York Times best-seller lists in the past three months, including Sarah Palin’s Going Rogue ($29) and the hot political tome Game Change ($28). Reuters reports Murdoch told analysts Tuesday that Amazon appears “ready to sit down with us again” and renegotiate the deal under which Amazon prices new e-book titles at $9.99. That’s even though the publisher still gets a wholesale payment based on a higher price and Amazon eats the loss itself.

“We don’t like the Amazon model of selling everything at $9.99,” Murdoch said. “They pay us the wholesale price of $14 or whatever we charge,” he said. “But I think it really devalues books, and it hurts all the retailers of the hardcover books.”

If HarperCollins forces Amazon’s hand, it would deal a major — and perhaps final — blow to the pricing scheme that discounts digital books relative to their print counterparts. Amazon wants to charge less for e-books in part to make the purchase of its Kindle e-book reader more palatable and create reader interest in a new format which should increase book sales overall.

But at least some book publishers think charging $10 for a new release is not enough, even though:
a) Charging as little as $3 more seems to be enough, which is still a hefty subsidy of the cover price.
b) The economy of scale only improves the more e-books you sell.
c) The cost of producing an e-book is as close to $0.00 as you can get.

After two days of bravado over the weekend, Amazon bowed to pressure from Macmillan. The publisher insisted on charging $12.99 to $14.99 for its books, even though it, too, was receiving the wholesale price commensurate with that higher price anyway.

Amazon had briefly banished Macmillan titles after the publisher complained about $10 books, but it blinked on Sunday and, in a brief Kindle forum post, said it had “capitulated” because “Macmillan has a monopoly over their own titles.”

The gathering storm began with last week’s announcement of the iPad. Five major publishers, including Macmillan, were part of the launch, and Apple said they would be free to charge more. The irony of ironies is that Apple’s policy, on a product which does not exist, has creating instant and irresistible pricing pressure on the world’s largest online retailer.

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